British India: An Era of Economic Uncertainty

Taught by Professor Hayden Bellenoit, Ph.D.

How did one of the most vibrant commercial centers in the global economy drift toward colonialism, and how did this set the stage for an eventual conquest of India, by both regional Indian and foreign powers?

Watch lecture 3 from the series A History of British India, and follow along with the summary below.

The Regionalization of the Mughal Empire

  • In 1707, the last great Mughal emperor died. His successors were weaker than he had been, and they were far less effective at governing. They were also seemingly blind to changing political realities in India. The emergence of competing regional kingdoms in 18th-century India had had a dynamic effect, opening up new sources of opportunity for revenue-hungry states and numerous social, military, and economic actors.
  • In many regional states, both Hindu and Muslim rulers needed to seek out the favor of Brahmins. For these rulers, Brahmins were often the source of power and legitimacy in the countryside, providing ritual affirmation for Hindu rulers and giving legitimacy to Muslim rulers. Regional states that wanted their cultivators to pay taxes often had to have the approval of the Brahmins.
  • Other groups that became sought after in 18th-century India were penmen and scribes. Penmen and scribes were both Muslim and Hindu, came from less elite and landed backgrounds, and were usually literate in Persian, accountancy, and managing paper. The largest group of Hindu scribes—Kayasthas—became known as an almost Islamized group, documenting taxes and military finance and writing imperial edicts.
  • As regional states began to make war on one another, everyone from common soldiers, or sepoys, to advisors and strategists saw a boom in employment across India. Regional states such as Mysore, Awadh, and the Maratha confederacy built large armies. In fact, historians have estimated that 2 percent of India’s population was in uniform full-time in the 1700s.
  • There were also substantial numbers of part-time soldiers. Given the vagaries of the monsoons, cultivators and farmers, when faced with bad harvests, would often join armies part- time to supplement their incomes. Coupled with full-time soldiers, it would be fair to say that around 5 percent of India’s population was engaged in direct warfare.
  • The emergence of regional warfare also affected India’s environment. Beginning in the 1700s, regional kingdoms began clearing forests to increase the amount of taxable, arable land. This meant more revenue for the army, court, scribes, and administration. For some, it could be the difference between victory and defeat. Deforestation also offered a tactical advantage: Fewer trees meant less cover for the enemy.
  • All regional states practiced something called military fiscalism. The kingdoms were increasingly shifting their spending and prerogatives toward armies, and this affected how agriculture was expanded, taxed, and administered. It also greatly affected the rhythms of India’s regional economies and centers of production.
  • For example, kingdoms that wanted to raise more revenue extended agricultural cultivation into wastelands. They cleared forests, displacing forest dwellers and tribal adivasi Settling the lands required capital and credit, which brought Hindu merchants and moneylenders into the picture. Newly settled lands also required administrators and scribes, around whom shops and canteens began to sprout.

India’s Place in the Global Economy

  • Beginning in the 1500s, the Portuguese were the first Europeans to try to get their hands on India’s wealth. They operated out of Goa, their colony on the west coast. In the 1600s, the English, Dutch, and French got involved, working primarily out of costal settlements. These European powers competed with each other and sought to intercept the flow of trade between Southeast Asia, India, and the Middle East.
  • Like India’s Muslim conquers and rulers before them, Europeans desired India’s wealth. And the potential spoils were massive: By 1700, roughly one-quarter of the world’s total commerce passed through the Indian subcontinent. The Indian economy was buoyant, and it hummed along with commercial vibrancy.
  • India in the 1700s was an exciting place for business and opportunity. Its economy linked villages with larger all-Indian networks of commercial exchange and mobility. Letters of credit could originate in Bengal and be cashed across the subcontinent in western India. Merchant families had branches across India and into central Asia.
  • Beginning in the 1500s, the Portuguese were the first Europeans to try to get their hands on India’s wealth.
  • The most sought-after items in the Indian economy in this period were textiles made from cotton and jute. The India artisanal economy was designed primarily for export, and Europeans increasingly
demanded Indian-made cloth
for shirts, trousers, tablecloths, 
napkins, and tapestries. In some
part of Southeast Asia, Indian 
textiles were accepted as a 
form of currency. Similarly, the English used Indian textiles to pay for slaves o the coast of West Africa.
  • One entity represented English—and after 1707, British— commercial interests in India: the East India Company. Founded in 1600 by Queen Elizabeth I at the behest of leading London merchants and traders, the East India Company was one of the world’s first publicly traded joint- stock companies. The company was granted a monopoly on trade between India and England. If you were an English subject (or a British subject, after 1707), and you wanted to trade legitimately in India, you had to go through the East India Company.
  • Initially, the East India Company did not have any political aims. If fact, the company wanted to avoid politics and power because such pursuits could eat away at profit. The company had shareholders, so returns and dividends were paramount. As a result, the British avoided getting involved in political a airs until the 1750s.
  • Unlike the Arabs, Persians, and Chinese, the British had certain advantages when it came to trading with India. One of these was silver. Silver was the standard backing India’s various rupee currencies, and massive volume of silver were available to Europeans from South America. Another advantage was the powerful British navy, which ensured that Britain could command the long-term maritime trade between India and the outside world.

Elizabeth I (1533–1603)

  • The East India Company also had its own private mercenary force, which was made up primarily of Indian soldiers. These mercenaries protect the company’s interests against various nawabs’ armies and the border incursions that came to define 18th-century India. And because the company had no political responsibilities, it did not have to abide by formal treaties or the rules of warfare.
  • Being from far away, the British (and Europeans more generally) were not taken seriously by Indians and the Mughals. Europeans were not feared by Indian rulers and traders, who saw them as crude, violent barbarians who loved drink.
  • Another disadvantage was that the British at first knew little about Indian customs, rituals, and religions. It wasn’t until after the conquests of the late 1700s that India’s great civilization and traditions were opened up to scholars and, eventually, the wider world.

India’s Great Commercial Families

  • India was not an innocent victim of colonial conquest. There was a wider collection of indigenous capitalists, merchant banker castes, and moneylenders who were later crucial in securing British domination by 1800. These merchant and banking families had started to become very influential at court and for regional Indian kingdoms in the 1700s.
  • In the 1700s, the regional kingdoms of Bengal, Awadh, Mysore, and the Maratha confederacy all needed more money and revenue to build up their administrations and bolster their rule. They needed bureaucrats, scribes, accountants, artillery, stores, provisions, and more. Fiscal might and access to credit were crucial, lest newly won territory and influence fall to regional rivals.
  • Because Muslims largely abstained from charging interest (considering it usury), Hindus and Jains served as India’s primary moneylenders. Hindu and Jain banking families had crucial advantages in the Indian economy, particularly in the Indian interior where all of India’s scale and material wealth lay. They moved grains, goods, and—crucially—long-distance credit bills called hundis, which were honored across India. By the mid-1700s, some of these families had become extremely wealthy and influential.
  • India’s powerful commercial families began to bankroll regional kingdoms. Nawabs, kings, and princes were extended lines of credit to finance wars and build up administrations. Coupled with overall Indian economic growth and European silver, these banking families were projected into new positions of influence.
  • Even though India’s great commercial families were becoming more important and influential, they tended to bump up against the prerogatives of royal courts. Regional kings in Awadh, Mysore, and Bengal, for example, required generous lines of credit to maintain their armies and administrations between harvests. They tended to squeeze Hindu and Jain banking families with their demands and terms.
  • As a result of these dynamics, India’s commercial families slowly withdrew their support for regional kingdoms throughout the 1700s. And there was always the possibility that they might throw their lot in with an external power who offered better agreements in terms of security and profitability—which is, of course, where the British came in.

Questions to Consider

  1. How significant was India within the global economy, and why did it attract so much foreign interest?
  2. What were the precolonial foundations for the British Empire in India?


From the Lecture Series A History of British India
Taught by Professor Hayden Bellenoit, Ph.D.